Brazil hits imported cars with tax increase

Brazil has turned its focus from fighting currency appreciation to protecting its industry with a sharp increase in taxes on foreign-built cars that will hit imports, particularly from China and South Korea.

The measure will increase by 30 percentage points Brazil’s industrialised products tax for vehicles including trucks that have less than 65 per cent local content and are made outside the South American Mercosur trade region or Mexico.

“Brazil is running the risk of exporting employment,” said Guido Mantega, finance minister, in Brasília.

“The government has been showing its concern that Brazil could be going through a deindustrialisation process,” said Barclays economist Guilherme Loureiro in a research note titled “Brazil: from currency to trade wars”.

“We are the fifth-largest automobile market in the world and the seventh-largest producer, but we risk losing our position if we don’t take measures,” said Mr Mantega.

But analysts said the move would add to Brazil’s high inflation, which is already beyond the official target of 4.5 per cent plus or minus 2 percentage points.